UNCTAD’s Technology and Innovation Report 2012 calls for using the steady rise of South–South trade and investment to improve knowledge acquisition

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UNCTAD/PRESS/PR/2012/035Geneva, Switzerland, (30 October 2012)

?Fast-growing South–South trade and investment is an opportunity to ramp up developing countries’ abilities to master market-useful technologies and to bolster their abilities to innovate new products and services, an UNCTAD report says.

TheTechnology and Innovation Report 20121, subtitled Innovation, Technology and South–South Collaboration, was released today. South–South economic cooperation is one of the major global economic developments of the past two decades. Exchanges between developing countries accounted for 55 per cent of global trade in 2010, as compared to 41 per cent in 1995, and this trend is already leading to useful diffusions of technology and innovative capacity, the Report says.

Increased South–South exchange can lead to greater technological sharing, in a variety of ways. A first important channel is the import of goods, the Report says, which are used by importing countries to improve their production processes through copying and reverse engineering. Global production networks and foreign direct investment (FDI) are other factors that could promote transfers of technology and technological development in countries.

The rise in the percentage of capital goods within South–South trade is therefore a very encouraging sign, UNCTAD affirms. Data in the Report show that not only have developing countries increased their share of capital goods imports, they are also the main source of high-technology capital goods for all other countries of the South. The share of developing countries’ imports from other developing countries has steadily increased, from 35 per cent in 1995 to 54 per cent in 2010. Trade in such products not only helps to expand economic activity and shift consumption patterns; it also shows that developing countries are increasingly offering competitive products in a variety of industries and involving a range of technologies.

Similarly, rising South–South investment, which is increasingly related to activities in the services economy, bodes well for technology and innovation activities in the developing world, as services are generally based on advanced knowledge and technology, the Report notes. The share of developing countries in total outward FDI rose from 15 per cent in 2005 (at $132 billion) to 27 per cent in 2010 (at $400 billion), a large share of which is directed to other developing countries.

Nevertheless, these benefits, which allow countries to technologically learn, innovate and integrate themselves into global production networks, both in low-cost manufacturing and in high-tech sectors, currently tend to be focused on only some countries. For example, East Asia accounts for the largest share of FDI outflows among developing countries, and most services-related FDI is directed towards other East, South-East, and South Asian countries, the Report says. Similarly, a large part of manufacturing FDI from these sources is directed at the electronics and automobile sectors of East Asian countries. By discussing this, the Report highlights an important problem, namely that the developments in South–South trade and technological exchange remain uneven, and that the existing technological divide prevents many countries from participating in and benefiting from South–South exchange.

This situation does not mean that there are no technological collaborations elsewhere in the developing world, however it means that, by comparison, there are far fewer of them. Such collaboration, where it has occurred, is nonetheless promising, the Report notes. For example, the Pan-African e-Network Project is an initiative led by the Government of India, undertaken in partnership with the 53 members of the African Union. The Brazilian National Service for Industrial Training (SENAI) has so far provided international technical assistance through 48 international partnerships with 25 countries, leading 29 projects, with five in sub-Saharan Africa. There also are some important collaborations in the field of health and pharmaceuticals between Quality Chemicals (Uganda) and Cipla Pharmaceuticals (India), and between Brazil and Mozambique for the production of anti-retroviral drugs to battle HIV/AIDS. Similarly, the “Lighten Up Africa” project is a joint collaboration between China and 10 African countries, supported by the United Nations Industrial Development Organization (UNIDO), to help set up hydropower stations in Africa.

The challenge is to expand these benefits to countries that currently are largely left out. UNCTAD calls for governments to take astute and cooperative steps to promote local technological learning, so that their firms can partake of the opportunities presented by increasing South–South exchange. It also calls for governments in all countries to provide clear incentives to firms to engage in technological sharing. In addition, there is a need to better coordinate State-led efforts to spur entrepreneurship with ongoing scientific and technological research. Currently, many countries, especially the least developed countries, are unable to capitalize fully on the existing and emerging opportunities in trade and technology due to the low absorptive capabilities of their firms and organizations.